US dollar continues to remain low against the basket of of currencies, however,rising sovereign bond yields (particularly the short duration) suggest that markets have not fully priced in the prospects of more Fed rate hikes amid signals of strengthening economy. With 10yr bond yield hoveringaround 2.5 level, 2yr yield is on the verge of breaching 2% mark. Meanwhile, tax reforms have completely failed to buoy the greenback, indicating that the repercussions of tax cuts and fiscal implications has not at all been factored in by the investors. Euro held ground despite slower inflation reading for Euro zone. There is a debate that the ECB will maintain an easy policy given the lower inflationary scenario, however, there is growing pressure from germany and Netherland to embark on the process of policy normalisation as economy is clearly showing signs of steady momentum. Moreover, there is certainly traction in producer price inflation across the globe, manifested by strong rise in prices of industrial commodities. it is matter of time before consumer inflation also catches up.
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